Question

LLlime Inc. is considering a new product launch. The project will cost $2,000,000 have a ten-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 30,000 units per year; price per unit will be $150, variable costs per unit will be $80 and fixed costs will be $600,000 per year. The required return on the project is 15 percent, and tax rate = 0% (i.e., ignore taxes). a. What is the accounting break-even level of output for this project? b. Find the firm's operating cash flow (OCF) if the firm just breaks-even on an accounting basis (that is, at Q = accounting break-even level). c. How many units, at a minimum, must LLlime sell before the project's OCF becomes negative? d. How many units, at a minimum, must LLlime sell before the project's NPV becomes negative? e. What if the marketing department of LLlime reports the annual expected sales of 13,000 units. Shall LLlime accept this project? Why? Calculate NPV and IRR at this sales level of 13,000 units.

          LLlime Inc. is considering a new product launch. The project will cost $2,000,000 have a ten-year life,
and have no salvage value; depreciation is straight-line to zero. Sales are projected at 30,000 units per
year; price per unit will be $150, variable costs per unit will be $80 and fixed costs will be $600,000 per
year. The required return on the project is 15 percent, and tax rate = 0% (i.e., ignore taxes).
a. What is the accounting break-even level of output for this project?
b. Find the firm's operating cash flow (OCF) if the firm just breaks-even on an accounting basis
(that is, at Q = accounting break-even level).
c. How many units, at a minimum, must LLlime sell before the project's OCF becomes negative?
d. How many units, at a minimum, must LLlime sell before the project's NPV becomes negative?
e. What if the marketing department of LLlime reports the annual expected sales of 13,000 units.
Shall LLlime accept this project? Why? Calculate NPV and IRR at this sales level of 13,000
units.

LLlime Inc. is considering a new product launch. The project will cost 2,000,000 have a ten-year life,
and have no salvage value; depreciation is straight-line to zero. Sales are projected at 30,000 units per
year; price per unit will be150, variable costs per unit will be 80 and fixed costs will be600,000 per
year. The required return on the project is 15 percent, and tax rate = 0% (i.e., ignore taxes).
a. What is the accounting break-even level of output for this project?
b. Find the firm's operating cash flow (OCF) if the firm just breaks-even on an accounting basis
(that is, at Q = accounting break-even level).
c. How many units, at a minimum, must LLlime sell before the project's OCF becomes negative?
d. How many units, at a minimum, must LLlime sell before the project's NPV becomes negative?
e. What if the marketing department of LLlime reports the annual expected sales of 13,000 units.
Shall LLlime accept this project? Why? Calculate NPV and IRR at this sales level of 13,000
units.

Added by Alfonso L.

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